Domestic merger and acquisition activity involving UK companies fell to its lowest level in 20 years in the third quarter of 2012 as risk-averse companies shied away from doing deals.

The Office for National Statistics said the sharp fall in the number and the total value of deals was evidence of the cautious approach being adopted by the corporate sector.

With confidence low and finance hard to come by, the number of deals involving UK companies dropped from 79 in the second quarter of 2012 to 47 in the third. The total value of the acquisitions halved from £1bn to £500m, a level not seen since the UK was gripped by recession in the early 1990s.

The ONS said the weakness of M&A activity "may be evidence of continued caution by UK companies to undertake equity capital transactions during the current economic climate".

Data for cross-border M&A activity showed the value of deals involving UK companies rose in the third quarter of 2012 despite a sharp fall in the number of transactions. The ONS said there were fewer, but bigger, transactions than in the same period a year earlier.

M&A activity has fallen sharply since the onset of the financial crisis five years ago. There were only nine acquisitions abroad worth more than £1m in the July to September period of 2012, down from 77 in the same quarter of 2011. However, overseas purchases by Anglo American and GlaxoSmithKline meant the value of the deals rose from £6.8bn to £7.8bn.

The number of transactions in the UK by foreign firms also fell from 68 to 31 between the third quarter of 2011 and the third quarter of 2012. But the value of inward acquisitions increased from £5.1bn to £8.6bn.